The following discussion of the financial condition and results of operations of our Company should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2008. Matters discussed in this Quarterly Report on Form 10-Q and in our public disclosures, whether written or oral, relating to future events or our future performance, including any discussion, express or implied, of our anticipated growth, operating results, future earnings per share, plans and objectives, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are often identified by the words "believe", "plans", "estimate", "project", "target", "continue", "intend", "expect", "future", "anticipates", and similar expressions that are not statements of historical fact. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Our actual results and timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q and in our other public filings with the Securities and Exchange Commission, or the SEC. It is routine for internal projections and expectations to change as the year or each quarter in the year progresses, and therefore it should be clearly understood that all forward-looking statements and the internal projections and beliefs upon which we base our expectations included in this Quarterly Report on Form 10-Q are made only as of the date of this Quarterly Report on Form 10-Q and may change. While we may elect to update forward-looking statements at some point in the future, we do not undertake any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

CRITICAL ACCOUNTING POLICIES

Certain of our accounting policies are particularly important to the portrayal and understanding of our financial position and results of operations and require the application of significant judgment by our management. As a result, these policies are subject to an inherent degree of uncertainty. In applying these policies, we use our judgment in making certain assumptions and estimates. Our critical accounting policies, which consist of revenue recognition, accounts receivable reserves, inventories, expenses associated with clinical trials and share-based compensation are described in our Annual Report on Form 10-K for the year ended December 31, 2008. There have been no material changes to our critical accounting policies in the quarter ended March 31, 2009.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2009 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2008

The following table presents consolidated statements of operations information as a reference for management's discussion and analysis which follows thereafter. This table presents dollar and percentage changes for each listed line item for the three months ended March 31, 2009 compared to the three months ended March 31, 2008, as well as consolidated statements of operations information as a percentage of total revenues (except for cost of product sales, which is stated as a percentage of product sales) for such periods.

                                                   Three Months Ended                    Increase
                                                       March 31,                        (Decrease)       % Change
                                         2009          %          2008         %       2008 to 2009    2008 to 2009
                                                           (In thousands, except percentages)
Revenues:
  Product sales                       $   3,478      100.0%    $   4,808      99.8%    $    (1,330)          -27.7%
  Net royalty income                          -        0.0%           12       0.2%            (12)               -

     Total revenues                       3,478      100.0%        4,820     100.0%         (1,342)          -27.8%

Costs and expenses:
  Cost of product sales                   1,409       40.5%        1,462      30.4%            (53)           -3.6%
  Research and development                2,194       63.1%        2,975      61.7%           (781)          -26.3%
  General and administrative              2,403       69.1%        2,456      51.0%            (53)           -2.2%
  Selling and marketing                   1,301       37.4%        2,164      44.9%           (863)          -39.9%

     Total costs and expenses             7,307      210.1%        9,057     187.9%         (1,750)          -19.3%


     Loss from operations                (3,829)    -110.1%       (4,237)    -87.9%            408            -9.6%

Other income (expense):
  Currency transaction (loss) gain          (21)      -0.6%           61       1.3%            (82)               -
  Interest income                            57        1.6%          299       6.2%           (242)          -80.9%

     Total other income                      36        1.0%          360       7.5%           (324)          -90.0%


     Loss before income taxes            (3,793)    -109.1%       (3,877)    -80.4%             84            -2.2%

Income tax expense                           10        0.3%           17       0.4%             (7)          -41.2%


Net loss                              $  (3,803)    -109.3%    $  (3,894)    -80.8%    $        91            -2.3%

REVENUES THREE MONTHS ENDED MARCH 31, 2009 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 2008




                                             Three Months Ended March 31,         Increase
                                                                                 (Decrease)       % Change
                                               2009               2008          2008 to 2009    2008 to 2009
                                                          (In thousands, except percentages)
Product sales:
  CardioSEAL®, STARFlex ® and BioSTAR®:
   North America                           $       2,292      $       2,834     $     (542)          (19.1)%
   Europe                                          1,038              1,974           (936)          (47.4)%
   Latin America                                     148                  -             148                -

     Total product sales                           3,478              4,808          (1,330)         (27.7)%

Net royalty income:
  Boston Scientific Corporation                        -                 12             (12)        (100.0)%

     Total net royalty income                          -                 12             (12)        (100.0)%


Total revenues                             $       3,478      $       4,820     $    (1,342)         (27.8)%

The decrease in product sales for the three months ended March 31, 2009 compared to the three months ended March 31, 2008 was primarily a result of the challenging global economy. In an effort to more tightly manage their cash flow, we believe that hospitals are reducing their inventories. As a result, while our implants continue to be used in procedures, hospitals are taking longer to re-order product in the near-term, thus slowing our sales cycle. We continue to make progress increasing overall unit sales of BioSTAR® and, as part of our effort to increase sales, we have added distributors to previously untargeted markets in Europe and Latin America. The early response in these new territories has been encouraging and we believe these areas and others will contribute to revenue growth in the quarters ahead. European sales represented approximately 29.8% and 41.0% of total product sales for the three months ended March 31, 2009 and 2008, respectively.

Cost of Product Sales. For the three months ended March 31, 2009, cost of product sales, as a percentage of total product sales, was approximately 40.5% compared with approximately 30.4% in the comparable period of 2008. The increase in cost of product sales as a percentage of product sales was primarily the result of the impact of fixed manufacturing overhead expenses on lower than budgeted production volumes. In addition, royalty expenses also increased as a percentage of sales due to lower sales volumes. For the full year 2009, we currently expect cost of product sales to be approximately 37.5% of total product sales, compared with approximately 33.4% for fiscal 2008. Included in cost of product sales were royalty expenses of approximately $377,000 and $364,000 for the three months ended March 31, 2009 and 2008, respectively.

Research and Development. Research and development expense decreased approximately $780,000, or 26.3%, for the three months ended March 31, 2009 compared with the three months ended March 31, 2008. The decrease in research and development expenses was primarily due to reduced costs associated with our clinical trials and the timing of expenditures related to our development programs as well as lower personnel costs.

We currently expect 2009 research and development expense to decrease to approximately $10.0 million compared to approximately $13.2 million in 2008. This anticipated decrease is primarily related to the completion of our clinical trial enrollment work. We have the ability to further adjust our investment in research and development activities.

General and Administrative. General and administrative expense decreased approximately $50,000, or 2.2%, for the three months ended March 31, 2009 compared with the three months ended March 31, 2008. Our CEO retired as of February 9, 2009 and we entered into a Settlement Agreement and Release at that time. The charges in connection with this agreement, including severance in the form of continued payment of his salary for twelve months in the amount of $460,000, accrued and unused vacation pay in the amount of approximately $35,000, health benefits for a period of 18 months, and the acceleration of the vesting of the CEO's unvested stock options in the amount of approximately $50,000 were included in general and administrative expenses for the three months ended March 31, 2009. Also included as a reduction to general and administrative expense for the three months ended March 31, 2009, is a payment received of $375,000 pursuant to a settlement agreement with Cardia, Inc.

General and administrative expense is currently expected to decrease slightly to approximately $8.3 million in 2009 compared to approximately $8.6 million in 2008.

Selling and Marketing. Selling and marketing expense decreased approximately $850,000, or 39.9%, for the three months ended March 31, 2009 compared to the same period in 2008. This decrease was primarily the result of decreased expenses related to commissions and sales bonuses due to lower sales and decreased travel and promotion expenses related to BioSTAR®. We currently expect worldwide selling and marketing expense in 2009 to decrease approximately $1.5 million compared to 2008, the result of a restructured and refocused sales structure which includes increased use of distribution channels.

Interest Income. The decrease in interest income for the three months ended March 31, 2009 compared to the same period in 2008 was primarily related to lower cash balances and lower interest rates during 2009. We currently expect interest income to approximate $200,000 in 2009 compared to $768,000 in 2008, primarily due to the use of approximately $10 million of cash, cash equivalents and marketable securities to fund 2009 operations.

Income Tax Provision. We provide for taxes on income from continuing operations based upon our anticipated effective income tax rate. We anticipate incurring a loss from continuing operations in 2009 and therefore have not made a provision for taxes on continuing operations in the three months ended March 31, 2009. For the three months ended March 31, 2009 and 2008, we recorded income tax expense of $9,838 and $17,344 for the establishment of a liability for uncertain tax positions.

LIQUIDITY AND CAPITAL RESOURCES

We currently believe that aggregate cash, cash equivalents, and marketable securities balances of approximately $16.3 million as of March 31, 2009 will be sufficient to complete our CLOSURE I trial and bring our STARFlex® implant with an indication for PFO closure to commercial market in the United States, subject to FDA approval. Based upon current projections, we expect that the aggregate of cash, cash equivalents, and marketable securities will approximate $6 million to $8 million at the end of 2009. This projection assumes a use of cash for 2009 of approximately $10 million compared to $13.4 million in 2008. We believe our cash use for 2009 will decrease compared to 2008, with clinical trial spending decreasing approximately $1.0 million, given that the data analysis for our CLOSURE I trial is currently expected to be in 2010. We have also implemented a series of cost reduction initiatives including reducing headcount throughout the organization, reprioritizing our internal programs and restructuring various departments that we believe will decrease expenses by greater then $1.0 million in 2009 compared to 2008. Based on current projections and plans, we believe that we have sufficient capital resources to complete the CLOSURE I trial and fund operations at least until we receive a decision with respect to a PMA with a PFO/stroke and TIA indication in the U.S. However, these forecasts are forward-looking statements that involve risks and uncertainties and actual results could vary materially.

We have incurred operating losses of $18.7 million and $11.1 million during each of the past two fiscal years, respectively, and have experienced decreasing sales over those time periods. We also incurred an operating loss of $3.8 million for the three months ended March 31, 2009. Our cash used in operations significantly parallels the operating losses we have incurred and we have an

accumulated deficit of $41.8 million as of March 31, 2009. In addition, we expect to incur significant additional research and development and other costs for the remainder of fiscal 2009 and in fiscal 2010-including costs to complete our CLOSURE I trial and bring our STARFlex® implant with an indication for PFO closure to commercial market in the United States, subject to U.S. FDA approval. Our costs, including research and development for our product candidates and sales, marketing and promotion expenses for any of our existing or future products to be marketed by us or our distributors currently exceed and will likely continue to exceed revenues during this period. However, given the current global economic climate, it is unlikely that equity sources of capital at acceptable value will be available in the short-term. We do not currently have any line of credit arrangements, but we are in discussions with a financial institution regarding a possible credit facility.

                                                       For the Three Months Ended March 31,
                                                        2009                          2008
                                                                  (In thousands)
Cash, cash equivalents and marketable
securities                                      $             16,266          $             28,175
Net cash used in operating activities                         (1,353)                       (2,935)
Net cash provided by investing
activities                                                     8,178                         8,188
Net cash provided by financing
activities                                                         6                           110

Net Cash Used in Operating Activities

Net cash used in operating activities for the three months ended March 31, 2009 totaled approximately $1.4 million and consisted of a net loss of approximately $3.8 million partially offset by a net decrease in working capital requirements of approximately $2.2 million and non-cash charges of approximately $220,000.

The non-cash charges of approximately $220,000 during the three months ended March 31, 2009 consisted of (i) stock-based compensation, (ii) depreciation of property and equipment and (iii) amortization of bond premium.

The primary elements of the $2.2 million net decrease in working capital during the three months ended March 31, 2009 consisted of an increase in accounts payable of approximately $1.5 million due primarily to the timing of royalty payments and decreases in accounts receivable of approximately $900,000, offset by a decrease in accrued expenses and long-term liabilities of approximately $300,000.

Net cash used in operating activities for the three months ended March 31, 2008 totaled approximately $2.9 million and consisted of a net loss of approximately $3.9 million partially offset by a net decrease in working capital requirements of approximately $791,000 and non-cash charges of approximately $168,000.

The non-cash charges of approximately $168,000 during the three months ended March 31, 2008 consisted of (i) stock-based compensation, (ii) amortization of bond discount, and (iii) depreciation of property and equipment.

The primary elements of the $791,000 net decrease in working capital during the three months ended March 31, 2008 consisted of a decrease in prepaid expenses and other current assets of approximately $2.1 million, due primarily to the reduction in the royalty receivable due from Bard as a result of the decrease in the royalty rate we receive from Bard, offset by decreases in accrued expenses of approximately $611,000, increases in accounts receivable of approximately $358,000 and decreases in accounts payable of approximately $264,000.

Net Cash Provided By Investing Activities

Net cash provided by investing activities of approximately $8.2 million during the three months ended March 31, 2009 consisted primarily of approximately $8.7 million of proceeds from maturities of marketable securities, offset by approximately $515,000 of purchases of marketable securities. This compared to net cash provided by investing activities of approximately $8.2 million during the three months ended March 31, 2008.

Net Cash Provided By Financing Activities

Net cash provided by financing activities was approximately $6,000 and $110,000 for the three months ended March 31, 2009 and 2008, respectively. For both periods, this was primarily attributable to proceeds from the issuance of shares of common stock pursuant to our employee stock purchase plan. The period ended March 31, 2008 also included proceeds from the exercise of common stock options.

Factors Affecting Sources of Liquidity

We may require additional funds for our research and product development programs, regulatory processes, preclinical and clinical testing, sales and marketing infrastructure and programs and potential licenses and acquisitions. On October 19, 2006, we filed a shelf

registration statement on Form S-3 with the SEC and that will permit us to offer and sell up to $65 million of equity or debt securities. However, given the current market conditions it is not clear how much market capital we would be able to raise using this registration statement or otherwise. Any additional equity financing will be dilutive to stockholders, and additional debt financing, if available, may involve restrictive covenants. Our capital requirements will depend on numerous factors, including the level of sales of our products, the progress of our research and development programs, the progress of clinical testing, the time and cost involved in obtaining regulatory approvals, the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, competing technological and market developments, developments and changes in our existing research, licensing and other relationships and the terms of any collaborative, licensing and other similar arrangements that we may establish. We do not have any line of credit arrangements, and we may not be able to obtain any such credit facilities on acceptable terms, if at all, but we are in discussions with a financial institution regarding a possible credit facility.

OFF-BALANCE SHEET FINANCING

During the quarter ended March 31, 2009, we did not engage in any off-balance sheet activities.